Extra time granted to elect foreign-partnership treatment for a joint-venture subsidiary

Plain-English summary

A U.S. partnership formed a foreign limited liability company as a joint venture with another party. Because every member of that foreign company had limited liability, the "check-the-box" default rules automatically classified it as a corporation for U.S. tax purposes. The parties actually wanted it treated as a foreign partnership, which requires filing Form 8832 (Entity Classification Election), but they inadvertently missed the deadline. The taxpayer asked the IRS for an extension of time under Treasury Regulation section 301.9100-3, representing that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted the relief: the subsidiary has 120 days to file Form 8832 electing foreign-partnership treatment effective as of the intended date, provided it also files any required (including amended) returns consistent with that treatment. This matters because the default entity-classification rules can produce an unwanted corporate result for a foreign joint venture, and section 301.9100 relief is the standard cure when the election is filed late.

Ruling snapshot

• Question: May a foreign eligible entity get an extension of time to file a Form 8832 electing to be treated as a foreign partnership effective as of the intended date?
• Outcome: Approved (120-day extension under section 301.9100-3 granted)
• Key authorities: Treas. Reg. § 301.7701-3(b), (c); Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202204006 Third Party Communication: None
Release Date: 1/28/2022 Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
9100.31-00 Person To Contact:
--------------------, ID No. -----------------
---------------------------------------- Telephone Number:
------------------------ --------------------
---------------------------------------- Refer Reply To:
---------------------------- CC:PSI:03
----------------------------- PLR-114170-21
Date:
November 04, 2021

Legend

X= ------------------------------------------

Y= -------------------------------------------

State = -------------

Country = ---------------------

Date 1 = --------------------------

Date 2 = --------------------

Date 3 = ------------------

A= ----------------------

Dear -------------:

   This responds to a letter dated July 6, 2021, submitted on behalf of X by its

authorized representative, requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations for a subsidiary, Y, to file an election under
§ 301.7701-3(c) to be treated as a foreign partnership for U.S. federal tax purposes as
of Date 3.
PLR-114170-21 2

                                       FACTS

    The information submitted states that X was formed as a limited liability company

under the laws of State on Date 1. On Date 2, X became a partnership for federal tax
purposes. On Date 3, X and A formed Y, a foreign limited liability company under the
laws of Country. Both A and X were members with limited liability under the law of
Country and thus Y was classified by the default rules of section 301.7701-3(b)(2) as an
association and treated as a corporation for federal tax purposes. X represents that Y is
a foreign entity eligible to elect to be treated as a foreign partnership and was formed as
a joint venture. However, X inadvertently failed to timely file a Form 8832, Entity
Classification Election, electing to treat Y as a foreign partnership effective Date 3.

   X represents that it acted reasonably and in good faith. Further, X represents

that the interests of the government will not be prejudiced for all taxable years affected
by the election by granting the relief sought.

                               LAW AND ANALYSIS

    Section 301.7701-3(a) provides, in part, that a business entity that is not

classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an
eligible entity) can elect its classification for federal tax purposes as provided in
§ 301.7701-3. An eligible entity with at least two members can elect to be classified as
either an association (and thus a corporation under § 301.7701-2(b)(2)) or a
partnership, and an eligible entity with a single owner can elect to be classified as an
association or to be disregarded as an entity separate from its owner.

     Section 301.7701-3(b)(2)(i) provides that, except as provided in § 301.7701-

3(b)(3), unless the entity elects otherwise, a foreign eligible entity is: (A) a partnership if
it has two or more members and at least one member does not have limited liability; (B)
an association if all members have limited liability; or (C) disregarded as an entity
separate from its owner if it has a single owner that does not have limited liability.
Section 301.7701-3(b)(2)(ii) provides, in part, that for purposes of § 301.7701-3(b)(2)(i),
a member of a foreign eligible entity has limited liability if the member has no personal
liability for the debts of or claims against the entity by reason of being a member.

   Section 301.7701-3(c)(1)(i) provides, in part, that, except as provided in

§ 301.7701- 3(c)(1)(iv) and (v), an eligible entity may elect to be classified other than as
provided under § 301.7701-3(b), or to change its classification, by filing Form 8832 with
the service center designated on Form 8832.

   Section 301.7701-3(c)(1)(iii) provides, in part, that an election made under

§ 301.7701- 3(c)(1)(i) will be effective on the date specified by the entity on Form 8832
or on the date filed if no such date is specified on the election form. The effective date
PLR-114170-21 3

specified on Form 8832 cannot be more than 75 days prior to the date on which the
election is filed and cannot be more than 12 months after the date on which the election
is filed.

   Section 301.9100-1(c) provides that the Commissioner may grant a reasonable

extension of time to make a regulatory election, or a statutory election (but no more than
6 months except in the case of a taxpayer who is abroad), under all subtitles of the
Internal Revenue Code (Code) except subtitles E, G, H, and I. Section 301.9100-1(b)
defines the term “regulatory election” as an election whose due date is prescribed by a
regulation published in the Federal Register, or a revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.

   Sections 301.9100-1 through 301.9100-3 provide the standards the

Commissioner will use to determine whether to grant an extension of time to make the
election. Section 301.9100-2 provides the rules governing automatic extensions of time
for making certain elections. Section 301.9100-3 provides the standards the
Commissioner will use to determine whether to grant an extension of time for regulatory
elections that do not meet the requirements of § 301.9100-2.

   Section 301.9100-3(a) provides that a request for relief under § 301.9100-3 will

be granted when the taxpayer provides the evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that (1) the
taxpayer acted reasonably and in good faith, and (2) the grant of relief will not prejudice
the interests of the Government.

                                  CONCLUSION

    Based solely on the information submitted and representations made, we

conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
As a result, Y is granted an extension of time of 120 days from the date of this letter to
file a Form 8832 with the appropriate service center to elect to classify as a foreign
partnership effective Date 3. A copy of this letter should be attached to the Form 8832.

    This ruling is contingent on Y filing, within 120 days from the date of this letter,

any required returns (including amended returns) consistent with the requested relief
being effective on Date 3 (including the application of § 301.7701-3(g)(1)(iii)). A copy of
this letter should be attached to any such returns or amended returns.

    We express no opinion concerning the assessment of any interest, additions to

tax, additional amounts, or penalties for failure to file a timely income tax or information
return with respect to any taxable year that may be affected by this ruling. For example,
we express no opinion as to whether a taxpayer is entitled to relief from any penalty on
the basis that the taxpayer had reasonable cause for failure to file timely any income tax
or information returns.
PLR-114170-21 4

   Except as expressly provided herein, we express or imply no opinion concerning

the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. In addition, § 301.9100-1(a) provides that the granting of an
extension of time for making an election is not a determination that the taxpayer is
otherwise eligible to make the election.

    If applicable, this election is disregarded for purposes of determining the amounts

of all section 965 elements of all United States shareholders of Y if the election
otherwise would change the amount of any section 965 element of any such United
States shareholder. See § 1.965-4(c)(2).

   The ruling contained in this letter is based upon information and representations

submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the ruling request, it is subject to verification on examination.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the

Code provides that it may not be used or cited as precedent.

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to X's authorized representatives.

                                  Sincerely,



                                  Richard T. Probst
                                  Senior Technician Reviewer, Branch 3
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

Enclosures (2):
Copy of this letter
Copy for 6110 purposes

cc: